June 12, 2014
Law360
By Elizabeth A. Niemeyer; Maximilienne Giannelli, Ph.D.
Authored by Maximilienne Bishop, Ph.D. and Elizabeth A. Niemeyer
The U.S. International Trade Commission has been a recognized forum for electrical and telecom cases. Chemical cases, however, are on the rise at the ITC. Consequently, practitioners in the chemical arts need to learn about the pros and cons of this once-obscure administrative agency. This article explores several factors practitioners should know and some strategic considerations that may be particularly relevant to chemical cases.
When considering whether to file at the ITC, the first consideration is the pace of litigation. The average time to trial can be a mere nine months, which includes about six to eight months of fact and expert discovery. The entire case—after an initial determination by the administrative law judge and final determination by the commission—typically wraps up in just 18 months, if not sooner. This timeline contrasts with most district court cases, which often involve protracted periods of discovery and typically take two to three years to reach trial.
The rapid pace of ITC litigation results in a greater percentage of cases going to trial. Approximately 45 percent of patent cases at the ITC proceed to trial—compared to a mere 5 percent of patent cases in district court.
The pace is particularly important since it impacts the overall litigation costs. An ITC investigation is analogous to buying a house with an 18-month mortgage instead of a 30-year mortgage, where the buyer might move after two years and only pay the first two years of the mortgage.
The fast time-to-trial at the ITC may make this forum more attractive to patentees seeking to avoid the risk of a stay that may otherwise result from an inter partes review at the Patent Trial and Appeal Board. The PTAB received nearly 1,000 requests for IPR from September 2013 through March 28, 2014.1 District courts grant the majority of requests to stay patent litigation after institution of IPRs.2 Needless to say, when patent litigation is stayed, resolution of the case (and any relief available to the patentee) is delayed.
By contrast, a stay pending resolution of an IPR currently seems unlikely at the ITC. Consider the timing of events at the ITC. If a respondent files a petition for IPR the same day the complaint is instituted, the PTAB may not decide whether to institute the IPR for five or six months. By that time, the ITC litigation will already be well underway, and the ITC is not likely to stay litigation pending the outcome of an IPR with trial a mere few months away.
Moreover, if the respondent files a petition for IPR a few months after the complaint is instituted (a far more likely scenario than filing the same day the complaint is instituted), the PTAB may not even issue a decision on whether to institute the IPR before trial at the ITC. These dynamics may provide patentees with an edge at the ITC that they would not otherwise have in district courts.
Although a stay is unlikely, patentees should still consider the potential interplay of IPR proceedings and ITC litigation. First, one should consider the potential impact on expert discovery, as the proceedings could run in parallel, and arguments made in one forum might become discoverable in the other. Next, the ongoing ITC litigation may inhibit a patentee's IPR amendments, as the patentee may not want to modify any claims at issue in the ITC. Finally, a decision by the PTAB invalidating certain claims will affect the outcome at the ITC (if all of the claims determined to be valid and infringed by the ITC are invalidated by the PTAB).
Next, patentees seeking to assert process patents should consider the fact that the safe harbor under 35 U.S.C. § 271(g) does not apply in the ITC. Section 271(g) provides that a product made overseas does not infringe a process claim if the imported goods are (1) materially changed by a subsequent process, or (2) trivial and nonessential components of another product. The Federal Circuit determined that this law does not apply to actions at the ITC.3
Although the safe harbor does not apply, not all process patents may be asserted at the ITC. The ITC has determined that patents covering intermediate compounds may be asserted, but that patents covering other aspects of the process might not fall within its jurisdiction. Specifically, the ITC determined that patents covering precursors to imported products could form the basis of an ITC investigation, but a patent claiming a method of recovering a catalyst did not fall under its jurisdiction when that process was used overseas.4 Patentees should carefully consider these factors when determining whether to assert a process patent in the ITC.
Another important consideration concerns asserting method claims where the method is practiced in the United States. Until recently, the ITC had exercised jurisdiction over cases involving induced infringement of such patents. A patentee could assert induced infringement of a method claim, even if direct infringement did not occur until after the product entered the United States. That issue, however, was recently called into question.
A panel at the Federal Circuit recently concluded that inducing infringement, when direct infringement does not occur until after importation, cannot serve as a basis for a violation of Section 337.5 The Federal Circuit recently vacated that decision and announced that it would rehear this appeal en banc. Pending the outcome of this en banc decision, patentees should be wary of asserting induced infringement at the ITC, when direct infringement does not occur until after importation.
One potential advantage to litigation in the ITC versus district courts concerns the former's in rem jurisdiction. In particular, the ITC has jurisdiction over products imported by or on behalf of respondents. This means that the respondents can be subject to discovery, regardless of whether the respondents would be subject to personal jurisdiction a federal court.
When used effectively, the broad discovery in the ITC can offer advantages to patentees. As an example, Eli Lilly and Company successfully used discovery in the ITC to obtain manufacturing batch records from a foreign respondent. Lilly had engaged in related litigation in Canada, the United Kingdom, Singapore, Denmark, Australia, China and two district courts in the United States. In all of those cases, Lilly was unable to obtain the discovery it wanted. Lilly then sued in the ITC, and the foreign manufacturer promptly produced the requested discovery.6
The ITC offers another potential advantage in the wake of the America Invents Act (AIA): the ability to sue multiple unrelated respondents. The AIA prohibits suing multiple defendants in one district court action except in two situations: (1) the patentee seeks relief jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process; or (2) questions of fact common to all defendants or counterclaim defendants will arise in the action. 35 U.S.C. § 299(a). Allegations of infringement do not provide a basis for joinder. 35 U.S.C. § 299(b). If neither situation provided in § 299(a) applies, a patentee must bring separate suits against unrelated respondents in district court.
By contrast, the ITC has no restrictions on naming unrelated defendants. Thus, the ITC provides a potential forum for patentees interested in stopping wide-spread infringement by multiple unrelated parties. As an example, in Investigation No. 337-TA-855, Hitachi Metals sued for infringement of patents covering methods of making rare earth sintered magnets, naming 29 respondents in the complaint. After obtaining over 20 settlements, Hitachi Metals withdrew its complaint prior to trial. This result would not have been so readily achieved in district court.
The next consideration involves the ITC's domestic industry requirement. This requirement has no analogy in district court patent cases and thus warrants special consideration by patentees that are unfamiliar with ITC practice.
The domestic industry requirement in a patent case has two prongs, a technical prong and an economic prong. To satisfy the technical prong, a patentee must show that it or its licensee practices at least one valid claim of each asserted patent. To satisfy the economic prong, the patentee must establish that it has significant domestic investments related to the asserted patent(s), and those investments may related to (1) plant and equipment, (2) labor and capital, and/or (3) exploitation of the asserted patent. There is no requirement that the patentee engage in manufacturing in the United States.
Patentees have relied on investments nearly as diverse as their patents. For example, in Investigation No. 337-TA-766, when asserting a patent covering a method of making the pharmaceutical gemcitabine, Eli Lilly relied on investments related to research and development and its licensee's activities. As another example, in a case involving the nutraceutical Metafolin, Merck & Cie (and related entities) relied on investments related to research and development, product support, and packaging of products incorporating Metafolin. And in Investigation No. 337-TA-877, Neptune Technologies and Bioresources Inc. relied on domestic investments related to encapsulation of krill oil extract that had been harvested in the Antartic Ocean, deep frozen in Uruguay, extracted in Quebec.
There is no bright-line rule for determining whether investments are sufficient to satisfy the domestic industry requirement, and it can be difficult to research since financial details are commonly confidential. In one recent investigation, however, the ITC concluded that domestic investments related to components amounting to 5 percent of product cost were sufficient.7
The next important consideration involves remedy. The ITC has the power to issue exclusion orders blocking importation of products, which amounts to an injunction. The ITC, however, does not apply the four-factor test of eBay to determine whether to issue the injunction. Thus, at the ITC, there is no requirement that a patentee establish irreparable harm or the inadequacy of damages (in fact, damages are not available at the ITC and must be pursued later in district court if at all).
As noted above, the remedy available at the ITC involves an exclusion order blocking importation of products into the United States. Exclusion orders may take two forms: (1) a limited exclusion order, which blocks imports by named respondents, and (2) a general exclusion order, which blocks imports by anyone when certain conditions are met. A general exclusion order may be available when infringement is widespread, and it is difficult to determine the source of infringing products. A general exclusion order is a very powerful remedy, and the burdens to obtain one are commensurately heightened.
Chemical cases were once few and far between at the ITC but they appear to be on the rise. When determining where to bring suit, patentees should carefully consider issues related to cost, inter partes reviews, process patents, discovery, domestic industry, and remedy.
Endnotes
1 http://www.uspto.gov/aia_implementation/statistics.jsp.
3 Kinik Co. v. ITC, 362 F.3d 1359 (Fed. Cir. 2004).
4 Certain Suralose, Sweeteners Containing Sucralose, and Related Intermediate Compounds Thereof, Inv. No. 337-TA-604, Commission Op. at 13-36 (Apr. 29, 2009) (discussing the ITC's jurisdiction over process patents and applying its analysis to the asserted patents).
5 Suprema, Inc. v. ITC, (Fed. Cir. Dec. 13, 2013).
6 See Certain Gemcitabine and Products Containing Same, Inv. No. 337-TA-766, Order No. 10 (Jun. 22, 2011).
7 Certain Kinesiotherapy Devices and Components Thereof, Inv. No. 337-TA-823, Comm'n Op. (Jul. 12, 2013).
Originally printed in Law360 (www.law360.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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